Replacement Cost Vs. Market Value – Which is Right For Your Home?

Posted on: June 22, 2015By: Abbate Insurance Blogging Team

When looking for the right homeowners insurance for your new house, you may assume that you will need to protect it for the amount that you paid for the house. However, choosing to protect your home for the market value will typically leave you with less protection than you need. Protecting your house for the rebuilding cost can help to ensure that you have the coverage that you deserve.

In most cases, the actual value of your home is much higher than the amount that you paid for it. The market value of your home will only show your home’s worth when it is put on the market, but it actually has very little to do with what it would cost to rebuild your home if it was a total lost. The rebuilding cost, also known as replacement cost, is the amount that you would need to build your home from the ground up after it was completely destroyed.

The cost to rebuild homes is typically much more than the original cost to build your home for many reasons, including:

Top-down – any repairs that are done on a home that has been partially destroyed is done from the top of a house down, which is more labor intensive and time consuming than building a completely new home from the ground up.

Bulk – contractors will spend more money when they are building just one house because they will not be able to purchase the necessary materials in bulk.

Demolition – in order to rebuild a house, a contractor will need to demolish whatever is still standing of the last house, which will lead to higher costs.

Labor – the labor for a single home build is not as efficient as when a contractor is building multiple homes since they will not be able to efficiently schedule various plumbers, carpenters, and electricians.

When looking for the right home insurance policy to properly protect your home, contact Abbate Insurance in New Haven, Connecticut.